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What’s Next For Comcast Stock?

Comcast Corporation (Nasdaq: CMCSA) waited less than 24 hours to outbid Twenty-First Century Fox (FOXA) for British media giant Sky. Analysts are now watching to see if Comcast will take a similarly aggressive approach and once again outbid Walt Disney Co. (DIS) for Fox.

On Wednesday morning, Fox outbid Comcast by offering $32.5 billion for Sky. Later in the evening, Comcast retaliated by raising its bid to $34 billion.

Both Comcast and Disney are on the hunt for acquisitions that could help boost content for their respective over-the-top streaming services. Comcast launched its Xfinity Instant TV streaming service last September, and Disney is planning to launch its highly anticipated streaming service next year.

While Fox and Comcast have been trading bids on Sky, Disney and Comcast have been raising the stakes for Fox. Disney has the highest offer of $71.3 billion for the majority of Fox’s TV and movie studio assets.

Credit Suisse analyst Doug Mitchelson says Comcast’s core business growth is slowing, but it still has plenty of cash flow. Management is now facing the tough decision of whether or not to risk that cash flow on acquisitions or help support its stock by beefing up buybacks and dividends.

“Cable revenue growth has already slowed to sub-4 percent, and we expect these pressures will only continue or worsen in the coming few years,” Mitchelson says.

“It also appears Comcast is entering a new investment phase given its launch of wireless service and pursuit of M&A, suggesting investors cannot rely on return of capital for support as top-line growth slows.”

Mitchelson says CMCSA stock appears cheap compared to its historical valuation, but he sees limited opportunity for earnings multiple expansion until investors see a clear path to long-term revenue growth. It seems as if Comcast sees Sky as a potential solution to its growth problem.

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